F.D.I.C. v. United Pacific Ins. Co., 96-4210

• Citation: 152 F.3d 1266
• Decision Date: 24 August 1998
• Docket Number: No. 96-4210,96-4210
• Parties: , 98 CJ C.A.R. 4540 FEDERAL DEPOSIT INSURANCE CORPORATION, Receiver for and on behalf of Heritage Bank and Trust, Plaintiff-Appellee, v. UNITED PACIFIC INSURANCE COMPANY, a corporation, Reliance Insurance Company, a corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1266

152 F.3d 1266

41 Fed.R.Serv.3d 1135, 98 CJ C.A.R. 4540

FEDERAL DEPOSIT INSURANCE CORPORATION, Receiver for and on behalf of Heritage Bank and Trust, Plaintiff-Appellee, v. UNITED PACIFIC INSURANCE COMPANY, a corporation, Reliance Insurance Company, a corporation, Defendants-Appellants.

No. 96-4210.

United States Court of Appeals Tenth Circuit.

Aug. 24, 1998.

Norman R. Carpenter, Faegre & Benson, Minneapolis, Minnesota (Philip L. Bruner with him on the briefs), for Defendants-Appellants.

Kathryn R. Norcross, Counsel, Federal Deposit Insurance Corporation, Washington, DC (Ann S. Duross, Assistant General Counsel and Thomas L. Hindes, Senior Counsel, Federal Deposit Insurance Corporation, Washington, DC, and Mark E. Friedman, Garvey, Shubert & Barer, Portland, Oregon, with her on the brief), for Plaintiff-Appellee.

Before BALDOCK, HOLLOWAY, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

United Pacific Insurance Company and Reliance Insurance Company ("Defendants") appeal the district court's denial of their Rule 60(b) motions seeking relief from judgment. Defendants also challenge the fairness of the proceedings on remand from the previous appeal of this case, arguing the district court's procedures prevented a fair and accurate computation of the Federal Deposit Insurance Corporation's ("FDIC") net recovery from the settlement of a legal malpractice suit against a third party. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, this court reverses and remands.

I. BACKGROUND

The facts of this case have been fully set out in a previous opinion of this court. See FDIC v. United Pac. Ins. Co., 20 F.3d 1070, 1072-75 (10th Cir.1994). We therefore repeat only those facts necessary to resolve the current appeal.

In June 1990, the FDIC, as receiver for Heritage Bank and Trust ("Heritage"), brought this action against Defendants United Pacific Insurance Company and Reliance Insurance Company seeking recovery under two fidelity bonds issued by Defendants. The FDIC sought to recover for a loss from a loan made by Heritage in 1984 to Hartwell International, N.V. ("Hartwell"), a Netherlands Antilles corporation, in the amount of approximately $4,600,000.

The Hartwell loan was secured by promissory notes, which were in turn secured by certificates of deposit purchased from Heritage totaling approximately $5,800,000. The makers on the notes were 1522 individual investors in a number of oil and gas drilling partnerships, known as the Transpac Partnerships. The notes were payable to Andover Finance, Ltd. and assigned to Hartwell, which then pledged the notes to Heritage as security for the loan.

After taking over Heritage in April 1987, the FDIC settled a number of securities fraud claims brought by Transpac investors against Heritage seeking cancellation of their promissory notes and return of their certificates of deposit. In April 1990, the FDIC also brought a malpractice action against John Lowe, outside legal counsel for Heritage during the period when the Hartwell loan transaction took place. The FDIC settled all claims against Lowe and his firm in exchange for $1,950,000.

In the suit against Defendants, the FDIC alleged that John R. Starley, president of Heritage, engaged in dishonest or fraudulent acts with the intent to injure Heritage and to secure personal financial gain, for which conduct Defendants' bonds provided indemnity. The bonds provided that the insurer must indemnify Heritage up to the limits of the bond for "[l]oss resulting directly from dishonest or fraudulent acts committed by an [e]mployee" of Heritage. Section 7 of the bonds further provided:

(a) In the event of payment under this bond, the Insured shall deliver, if so requested by the [Insurer], an assignment of such of the Insured's rights, title and interest and causes of action as it has against any person or entity to the extent of the loss payment.

(b) In the event of payment under this bond, the [Insurer] shall be subrogated to all of the Insured's rights of recovery therefor against any person or entity to the extent of such payment.

(c) Recoveries, whether effected by the [Insurer] or by the Insured, shall be applied net of the expense of such recovery first to the satisfaction of the Insured's loss which would otherwise have been paid but for the fact that it is in excess of either the Single or Aggregate Limit of Liability, secondly, to the [Insurer] as reimbursement of amounts paid in settlement of the Insured's claim, and thirdly, to the Insured in satisfaction of any Deductible Amount.

....

....

(e) The Insured shall execute all papers and render assistance to secure to the [Insurer] the rights and causes of action provided for herein. The Insured shall do nothing after discovery of loss to prejudice such rights or causes of action.

Prior to the jury trial in this case, the district court granted the FDIC's in limine motion to exclude evidence relating to the Lowe settlement on the ground that the settlement was a recovery from a collateral source which would not reduce the loan loss claim under the bonds. The district court also granted the FDIC's in limine motion to exclude evidence attempting to project the FDIC's recoveries through possible settlements of the remaining investor claims and the liquidation of the remaining loan collateral, on the ground that such evidence would be speculative.

At trial, the FDIC claimed it suffered a loss of $4,586,257, the amount loaned to Hartwell. To this amount, the FDIC credited $1,253,213, which represented the net recoveries it obtained through the time of trial from settlements with some of the named investors on certificates of deposit held as collateral for the Hartwell loan. ¹ Pursuant to the district court's earlier rulings, no evidence was presented concerning the status or potential value of the remaining collateral or the recovery from the Lowe settlement. Defendants were permitted to argue, however, that because the Hartwell loan was fully collateralized, the FDIC suffered no loss on the loan.

The jury returned a special verdict for the FDIC, finding that Starley, while an officer of Heritage, committed a dishonest act with manifest intent to cause Heritage to sustain a loss and obtain financial benefit for himself or another person. The jury further found that the loss to Heritage resulting from Starley's dishonest act was $3,333,044. In reaching this figure, the jury deducted from the $4,586,257 loan balance $1,253,213 for the FDIC's net recovery from the loan collateral which had been liquidated as of the date of trial. Consistent with the terms of the bonds, the district court then entered judgment in favor of the FDIC in the amount of the bonds, $1,450,000, plus interest.

On appeal, this court reversed the district court's ruling excluding evidence of the Lowe settlement, but affirmed on the remaining liability and damages issues raised by Defendants. See id. at 1083. With respect to the Lowe settlement issue, the court remanded the case to the district court to determine what portion of the $1,950,000 settlement represented common damages, requiring a credit against the judgment to avoid a double recovery by the FDIC for the same loss. See id. Noting that the jury had concluded the FDIC sustained a loss greater than the limits of the bonds, the court further directed that the applicable portion of the Lowe settlement proceeds must first reduce the FDIC's total loss before the proceeds could be applied to reduce the judgment. See id. at 1083 n. 12.

On remand, in June 1994, Defendants filed a motion for relief from judgment pursuant to Federal Rule of Civil Procedure 60(b). In addition to arguments relating to the Lowe settlement and a $91,798 loan fee which Defendants argued should be credited against the judgment, Defendants requested that the district court issue an order compelling an accounting for all Hartwell loan collateral which remained in the hands of the FDIC and that the district court reduce the judgment by the value of the notes and certificates upon which the FDIC had recovered. Defendants argued that the remaining collateral should be credited against the judgment because the FDIC would otherwise obtain a "double recovery" from both the collateral and the bond proceeds. Defendants further asserted that this court's opinion contemplated that a credit would be given to Defendants for the value of the remaining collateral and that their Rule 60(b) motion provided a procedural mechanism to accomplish what this court contemplated in its decision.

In response, the FDIC argued that Defendants' Rule 60(b) motion sought to circumvent this court's mandate by raising substantive issues already disposed of on appeal. The FDIC asserted that this court affirmed all issues relating to liability and damages with the exception of giving Defendants a credit for the FDIC's net recovery from the Lowe settlement. The FDIC concluded that consideration of any other issue on remand would violate this court's mandate. The FDIC further argued that Defendants had failed to demonstrate extraordinary circumstances justifying relief under Rule 60(b)(6). ²

In July 1994, the FDIC filed a Motion for Order to Determine Calculation of Damages on Remand, requesting that the district court establish by order that Defendants were only entitled to a credit for the FDIC's net recovery from the Lowe settlement and that the judgment would only be reduced if that net recovery was greater than the $1,883,044 difference between the $3,333,044 jury verdict and the bond amount. Further, the FDIC argued that unless the net settlement recovery exceeded $1,883,044, it would be unnecessary for the district court to determine the extent to which the judgment and the Lowe settlement represented common damages.

In November 1994, the district court granted the FDIC's motion and denied Defendants' Rule 60(b) motion "[f]or the reasons outlined by [the FDIC] in its responsive...